Like most people I had heard about Bitcoin, Crypto Currencies and Block chain over the past few years, unlike most though I decided to take the plunge and jump in feet first with little knowledge and invested £100 into Bitcoin the night before Brexit (which sounds like a Children’s Story book title!).
Within the first year my funds had seen peeks of around £400+, so I invested another £100 before the US elections with a few smaller amounts at different times and I’m seeing my funds reaching over £800 from the initial small investment.
Wanting to learn more I am putting together a series of short blogs, primarily to help me understand this revolution of decentralised operation and hopefully provide a layman’s understanding to help others.
So, let’s start at the beginning as I try to understand the current system that we are all used to, as in our common currencies, in my case the British Pound.
What is Money?
We know this as the legal tender which we carry as notes and coins and we exchange these for goods and services, each country or Countries (for Euro) has their own money in circulation as defined by each government and usually manged by the central Banks of that country, the common names we know as Pound, Yen, Franc, Dollar, etc.
Most of the currencies can be traded or converted to other country’s currencies, this is especially convenient when visiting that particular country. This exchange is usually done through an exchange kiosk, post office or bank where the rate of exchange fluctuates hourly / daily depending upon the appreciation or depreciation of the currencies being exchanged.
So what does this mean?
Back in the day if I had a £1 note this used to be worth around $2 in the US, today £1 will only get you $1.28! therefore the Pound has depreciated against the Dollar.
This means that buying goods from the states is expensive for people in the UK, let’s say a pre-packaged loaf of bread costs $2.00 in the US and the cost in the UK is £1.25. If we traveled to the US and purchased a loaf of bread (not advisable!), then we would need to exchange our £ to $, so to get $2.00 I would need to pay £1.57 at the post office. Hence, I would be paying more than normal for my loaf.
Appreciation is exactly the opposite.
For businesses, depreciation can be positive for exporting goods to other countries, but on the down side, importing of goods becomes expensive so this can drive towards local production which again can create more jobs so long as there is a requirement for the sale of the finished goods.
Finally, if I wanted to send money to my son in Australia, I would ask the bank to send this from my account to his account, or do this through a money exchange where I pay the money from my bank to them and they send to my son. All of this incurs both charges and exchange rates.
We’ll look further into this in Part 2.